Can a lawyer participate in a prepaid or group legal-services plan where a service organization refers clients and handles the fee?

Plain-English summary

The inquiry described two arrangements. In situation A, a corporation's cafeteria benefits plan included a legal-service organization; the employee contacts the organization, receives the name(s) of affiliated attorneys, and contacts the attorney, who performs set services at reduced rates billed to the organization while billing the employee directly for any additional work; the employee may use a different attorney, the attorney may accept or reject the employee, and there is no charge to belong. In situation B, a national money-management membership group recruits affiliated attorneys, sends an estate-planning questionnaire to the member, forwards the completed questionnaire to the attorney with a letter giving the attorney's name, has the attorney prepare estate documents for a flat fee and return them to the organization for packaging and distribution, pays the attorney, and markets the service to clients at a price $600 higher than what it pays the attorney. The inquiry asked, under Rule 7.2(c), whether either practice is unethical, and whether B runs afoul of Rule 7.3 because the attorney is asked to contact the client.

The committee held situation A permissible and situation B impermissible, analyzing B first. Drawing on Advisory Opinion 91-36, it found B raises unauthorized practice, fee splitting, and improper solicitation. Because the organization decides what information is relevant and what documents the attorney prepares, it appears to engage in the unauthorized practice of law under Rule 5.5(b); the committee quoted 91-36 that deciding what facts are relevant and what type of will is appropriate is the lawyer's legal work, and neither function is necessarily performed by a lawyer under B's arrangement. B also violates Rule 5.4(c) by letting a person who recommends, employs, and pays the lawyer direct or regulate the lawyer's professional judgment, and the similar Rule 1.8(f) by accepting compensation from someone other than the client where there is interference with the lawyer's independent judgment and the client relationship. Because the organization charges the client a single fee and remits part to the lawyer, the lawyer is splitting fees with the organization in violation of Rule 5.4(a). Given the relationship, the manner in which the client relationship is created may be viewed as direct in-person solicitation under Rule 7.3, and any participating lawyer must ensure the company's advertising about legal services and cost is not false or misleading. By comparison, situation A violates none of these Rules: the client makes initial contact, a service organization may charge the employer a fee (assuming it is not based on a formula keyed to the lawyer's fees), there is no improper fee splitting, the lawyer is not charged to belong, the organization may not direct the lawyer's judgment, and the organization makes only a referral without procuring client information or directing the lawyer's services, so there is less unauthorized-practice concern.

Currency note

This opinion was issued in 1992, before the South Carolina Bar's adoption of the 2005 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer join an employer's prepaid legal-services benefit plan?

A: The committee said yes for the plan in situation A, where the employee initiates contact, the organization only refers, the lawyer is not charged to belong, and the organization does not direct the lawyer's judgment or split the legal fee.

Q: Why did the committee find the estate-planning plan (situation B) improper?

A: Because the organization gathered client information and decided which documents to prepare (unauthorized practice under Rule 5.5(b)), directed the lawyer's judgment and paid the lawyer (Rules 5.4(c) and 1.8(f)), split the single client fee with the lawyer (Rule 5.4(a)), and created the relationship in a way resembling in-person solicitation (Rule 7.3).

Q: Does the client first asking the organization for help cure the solicitation concern?

A: The committee did not treat the client's request as curing situation B; given the lawyer's relationship to the organization, it said the way the lawyer-client relationship was created could be viewed as direct in-person solicitation under Rule 7.3.

Q: What makes a plan a permissible referral rather than fee splitting?

A: The committee pointed to the organization making only a referral, not procuring client information or directing the lawyer's services, and to any charge to the employer not being based on a formula keyed to the lawyer's fees.

Background and rules framework

The opinion applied Rule 5.5(b) (unauthorized practice), Rule 5.4(a) and (c) (fee sharing with and direction by non-lawyers), Rule 1.8(f) (compensation from a third party), Rule 7.2(c) (recommending a lawyer / referral arrangements), and Rule 7.3 (solicitation), each corresponding to the like-numbered Model Rule. It relied on Advisory Opinion 91-36 for the unauthorized-practice analysis of will-drafting arrangements.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 5.4(a) / Model Rule 5.4: a lawyer shall not share legal fees with a non-lawyer.
• South Carolina RPC 5.4(c) / Model Rule 5.4: a lawyer shall not let a payer direct or regulate professional judgment.
• South Carolina RPC 5.5(b) / Model Rule 5.5: unauthorized practice of law.
• South Carolina RPC 1.8(f) / Model Rule 1.8(f): accepting compensation from a third party only without interference with independent judgment and the client relationship.
• South Carolina RPC 7.2(c) and 7.3 / Model Rules 7.2 and 7.3: recommending a lawyer and solicitation.

Other opinions cited:

• SC Bar Advisory Opinion 91-36: a will-drafting arrangement where a non-lawyer decides relevant facts and document type is unauthorized practice.

See also

• SC Bar Ethics Op. 00-10: Joining an Online Lawyer-Matching Service
• SC Bar Ethics Op. 01-03: Paying an Internet Service for Leads

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-92-28/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 92-28

A) A major multi-national corporation has a contract with a legal service organization as a part of its cafeteria plan on benefits for employees. As part of this plan, the employee can contact the service organization and be given he name or names of affiliated attorneys. The Employee may then contact the attorney to provide services. The attorney has agreed to perform set services at reduced rates which are billed to the organization; any additional services requested or need by the employee are billed by the attorney directly to the employee. The employee has the right to use a different attorney if desired, and the attorney may accept or reject the employee as a client. There is no charge to the attorney to belong to the service organization.

B) A national money management membership group solicits South Carolina attorneys to become affiliated attorneys. The attorney fills out an application and sends it in. The client requests information from the group on estate planning. The service organization sends a questionnaire to the member. Once returned to the group the service organization sends the questionnaire to the attorney with a letter to the client, giving the attorney's name. The attorney is to contact the client, complete requested estate documents for a flat fee and return to the service organization for packaging and distribution to the client. The fee is paid to the attorney by the service organization. Promotional literature sent to the client by the service organization shows advertisement for these services to the client at a price different-$600.00 more expensive-than that paid to the attorney by the service organization.

Under SCACR 407, 7.2 (c) regarding a legal service organization, is either or both of these practices unethical? Also, it would seem that situation (B) may run afoul of Rule 7.3 of SCACR 407 in that the attorney is asked to contact the client. Does the fact that the client has requested assistance from the service organization negate the prohibition against direct contact with a prospective client?

Summary:
Fact situation A is permissible. Fact situation B is not.

Opinion:
Fact situation B is very similar to the situation discussed in Advisory Opinion 91-36 and violates several provisions of the Rules of Professional Conduct. Discussion of fact situation B first may be instructive in explaining why fact situation A is permissible.

Situation B raises concerns of unauthorized law practice, fee splitting, and improper solicitation. The involvement of the estate planning system at both the beginning and end of the relationship described in B raises an issue under Rule 5.5(b). The national money management membership group sends the initial questionnaire to the member. To the extent that the service organization is deciding what information is relevant and deciding what documents need to be prepared by the attorney, it would appear to be engaging in the unauthorized practice of law.

As stated in Ethics Advisory Opinion 91-36: To draft a will appropriate for an individual, a lawyer must obtain all relevant facts. The decision as to what facts are relevant is an important part of his legal work, as of course is the determination of the appropriate "type of will". Under the described arrangement neither of these functions is necessarily performed by a lawyer.

The scheme in fact situation B further violates Rule 5.4(c) in that the lawyer is permitting a person who recommends, employs and pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services. This further violates the similar provisions of Rule 1.8(f), in that the lawyer is accepting compensation for representing a client from one other than the client in a situation where there is interference with the lawyer's independent professional judgment and with the lawyer-client relationship.

The service organization in situation B appears to charge a single fee to the client and then submit a part of that fee to the lawyer. In that case, the lawyer in B is clearly splitting the legal fees with the service organization, in violation of rule 5.4(a).

Given the relationship of the lawyer to the service organization, the manner in which the lawyer-client relationship is created may be viewed as direct in-person solicitation under Rule 7.3.

Finally, if these ethical issues could be resolved, any lawyer involved in this enterprise should ensure that representations made by the company in advertising regarding legal services and their cost are not false or misleading and are not in conflict with Rule 7.3.

By comparison, fact situation A appears to violate none of these Rules. The client in A makes initial contact with the lawyer. A service organization may charge a fee to the employer for its services. There appears to be no improper splitting of legal fees, assuming that the cost to the employer is not based upon a formula in which the amount of the lawyer's fees is a factor. The lawyer is not charged to belong to the service organization. The service organization may not direct or regulate the lawyer's professional judgment in rendering such legal services.

The service organization in A makes only a referral and is not involved in procuring information from the client or directing the services of the attorney. Therefore, there is less concern in this situation than in the prior situation regarding the unauthorized practice of law.